NAIC advances set of flood policy principles with reauthorization of troubled NFIP a year away

A key committee of the NAIC, the state regulatorystandard-setting body, has adopted aset of principles for the National Flood Insurance Program reauthorization thatit hopes will aid Congress as it gears up to consider reforms to the nation'sflood insurance policies.

The NFIP is up for reauthorization a year from now, expiringSept. 30, 2017, and stakeholders are hoping for reforms to address the nation'sflood risk and the financiallytroubled federal program.

The NAIC principles in general support growth in the privateflood insurance market to supplement the NFIP's offerings, ask for a long-termreauthorization of the program and demand assurance that state insuranceregulators have the same supervisory oversight of private flood insurance.

The NAIC's Property and Casualty Insurance Committee votedto forward the recommendations to its Government Relations Leadership Councilduring a conference call Sept. 29.

The principles also call for passage of pending legislationthat would make certain that private flood insurance meets lenders' mandatorypurchase requirements. Under the NAIC principles, policyholders would beallowed to return to the NFIP from private flood insurance without the penaltyof losing the subsidized rate.

The principles also call for the Federal EmergencyManagement Agency, which oversees the NFIP, to share its data on flood zonemapping and claims information with private insurers and others so they canunderwrite and assess risk.

The NAIC document will now be considered by the leadershipcouncil for any revisions before it is sent to Congress.

During the conference call, led by Pennsylvania InsuranceCommissioner Teresa Miller, fellow regulators and leading insurance industryrepresentatives voiced support for the draft principles.

However, consumer advocates decried the proposed language,stating that the document is not even a statement of principles, nor astrategy, but a series of recommended actions that are not tied to reform.

"The recommended actions conflict with basic insuranceprinciples and with the stated goals of the NFIP," the Center for EconomicJustice and the Consumer Federation of America said in a Sept. 29 statementsubmitted to the Property and Casualty Insurance Committee.

The recommendations would make it easier for privateinsurers, particularly surplus lines insurers, to "cherry pick" NFIPpolicies, resulting in the riskiest policies pooling up in the NFIP, therebyincreasing losses for taxpayers, the consumer advocates argued.

The NAIC principles seek both actuarial rates and affordablerates at the same time, and set up an adverse selection process, sending theleast-risky policies to the private insurers, they argued.

"We don't understand why state insurance regulators —who again and again see close up the massive hardships caused by inefficientdelivery, inadequate purchase and poor claims settlement practices of NFIPflood insurance — are not presenting a more comprehensive, knowledgeable andurgent set of recommendations to Congress," the consumer advocates said."The draft document simply does not reflect insurance regulators' knowledgeof insurance market."

Birny Birnbaum, an economist and executive director of theCenter for Economic Justice, raised those points and more during the conferencecall, saying the industry knows better than the document would suggest,prompting Miller to say that the document has already been under discussion forseveral months now.